IRS Finalizes Form 8308 Part IV Relief for Section 751(a) Partnership Exchanges

Treasury and the IRS are eliminating the requirement to furnish Part IV of Form 8308 to the transferor and transferee in sales of partnership interests where the partnership owns “hot assets.” However, the partnership must still (1) furnish Form 8308 with Parts I–III to the transferor and transferee by January 31 (or, if later, 30 days after the partnership receives notice of the exchange); and (2) file the complete Form 8308 with its Form 1065 by the due date of its return (including extensions).

On May 20, 2026, the Treasury Department and the IRS published final regulations (TD 10048) modifying the information reporting obligations that apply to partnerships when a partner sells or exchanges an interest in a partnership holding “hot assets” — unrealized receivables or inventory items — under section 751(a) of the Internal Revenue Code.¹ The final regulations adopt without change the proposed regulations published in the Federal Register on August 19, 2025 (REG-108822-25).

Why the IRS Revised Form 8308 Part IV Reporting Requirements

Section 6050K requires a partnership to file Form 8308, Report of a Sale or Exchange of Certain Partnership Interests, as an attachment to its Form 1065, when a partner sells or exchanges a partnership interest involving section 751 property, and to furnish a payee statement to each transferor and transferee by January 31 of the following calendar year (or, if later, 30 days after the partnership receives notice of the exchange).² Congress added the reporting requirement in 1984 because partnership returns did not provide the IRS with sufficient information to audit the proper allocation of capital gains or losses and ordinary income in partnership interest transfers involving section 751(a) property — a deficiency the House Committee noted was also linked to abusive tax shelter activity.³

When the IRS revised Form 8308 in October 2023 to add Part IV requiring detailed information, many partnerships found they could not gather that information by January 31 because the underlying figures depend on the partnership’s full-year tax determinations.

DETAILED ITEMS REQUIRED BY FORM 8308, PART IV, FOR EACH SALE OR EXCHANGE OF A PARTNERSHIP INTEREST ·     (a) Partnership-level deemed sale gain (loss) ·     (b1) Percentage interest in the partnership transferred ·     (b2) Number of units in the partnership transferred ·     (c) Partner-level deemed sale gain (loss) Each of these items is reported separately by the type of ordinary income it relates to (section 751(a) gain or loss, section 1(h)(5) collectibles gain, and section 1(h)(6) unrecaptured section 1250 gain) and is tied to the corresponding K-1 box 20 reporting code (AB, AC, and AD, respectively).

In response, the IRS provided interim penalty relief in Notice 2024-19 (for 2023 exchanges) and again in Notice 2025-2 (for 2024 exchanges).⁴ Under that relief, a partnership avoided penalties for failing to furnish a completed Part IV by January 31 if it (1) timely and correctly furnished Parts I, II, and III (or a statement containing the same information) to the transferor and transferee and (2) furnished a complete Form 8308, including Part IV, to the transferor and transferee by the later of the due date of the partnership’s Form 1065 (including extensions) or 30 days after notice of the exchange. The final regulations go further than the notices by eliminating the requirement to furnish Part IV to the transferor and transferee at all.

The partnership’s separate obligation to (1) furnish Form 8308 with Parts I–III to the transferor and transferee by January 31 (or, if later, 30 days after the partnership receives notice of the exchange); and (2) file the complete Form 8308 — including Part IV — as an attachment to its Form 1065 tracks the proposed regulations without change.

Note, in addition, a partnership is required to report information about ordinary income directly to the transferor partner on IRS Schedule K-1 as part of its Form 1065 filing. See e.g., Box 20AB (Section 751 gain (loss)). ⁵

When Do the TD 10048 Final Regulations Take Effect?

The final regulations are effective on May 20, 2026 (the date of publication in the Federal Register), and apply to returns filed for taxable years ending on or after that date. For section 751(a) exchanges occurring on or after January 1, 2025 and before that date, partnerships were permitted to rely on the proposed regulations.⁶

What TD 10048 Means for Partnerships and Their Advisers

The final regulations adopt the proposed regulations (REG-108822-25) without modification; Treasury and the IRS received no comments on the proposal, and no public hearing was held.

For partnerships and their advisers, the rules provide welcome relief by aligning the January 31 furnishing deadline with the information a partnership can realistically produce that early in the year, while preserving more detailed Part IV reporting on the later-filed Form 1065 and the Schedule K-1 issued to the transferor partner.

For a visual breakdown of the information required by the final regulations and Form 8308, see Exhibit.

Exhibit

Form 8308 — What Must Be Furnished, and When

A simplified reproduction of Form 8308 (Rev. October 2024) is below.⁷

TRANSFEROR’S SEPARATE STATEMENT

In addition to the partnership’s Form 8308 obligations (described above), the transferor (i.e. the selling partner) is separately required under Treas. Reg. § 1.751-1(a)(3) to attach a statement to the transferor’s own income tax return setting forth (i) the date of the sale or exchange, (ii) the amount of any gain or loss attributable to section 751 property, and (iii) the amount of any gain or loss attributable to capital gain or loss on the sale of the partnership interest. This requirement is independent of — and is not satisfied by — the partnership’s Form 8308 filing.

 

ENDNOTES

1. Section 751(c) generally defines “unrealized receivables” to include, to the extent not previously includible in income under the partnership’s method of accounting, rights to payment for goods delivered or to be delivered (where the proceeds would be treated as from property other than a capital asset) and for services rendered or to be rendered. Section 751(c) also sweeps in depreciation recapture under sections 1245 and 1250 and certain other items listed in the flush language of section 751(c) that produce ordinary income on disposition. Section 751(d) generally defines “inventory items” to include the partnership’s stock in trade and any other property that, on disposition, would not be a capital asset or section 1231 property. Together, the two categories are commonly referred to as the partnership’s “hot assets” because gain attributable to them on a section 751(a) sale or exchange is recharacterized as ordinary income.
2. Section 6050K(c)(1) places the notice obligation on the transferor partner, who must promptly notify the partnership of the section 751(a) exchange; under section 6050K(c)(2), the partnership’s Form 8308 obligation does not arise until it is notified. Treas. Reg. § 1.6050K-1(e)(2) also treats the partnership as notified if it has knowledge of the transfer and held section 751 property at the time.
3. H.R. Rep. No. 98-432(II), at 1364 (1984) (discussing sec. 158 of the bill, enacting new I.R.C. § 6050J, redesignated § 6050K upon enactment as § 149(a) of Pub. L. No. 98-369).
4. Andrea M. Whiteway & Ryan J. Dobens, IRS Again Provides Partnerships with Additional Time to Furnish Information on IRC Section 751 Property, EY Tax News Update (Dec. 19, 2024), available at taxnews.ey.com/news/2024-2352.
5. Box 20 of Schedule K-1 (Form 1065) was modified for the 2019 tax year to add Code AB (section 751 gain (loss)). That partner-level reporting on Schedule K-1 therefore preceded the IRS’s October 2023 modifications to Form 8308 (which added Part IV) by approximately four years.
6. Andrea M. Whiteway & Ryan J. Dobens, Prop. Regs. Would Make Permanent Safe Harbor for Furnishing Information on Sec. 751 Property, Tax Adviser (Dec. 31, 2025), available at thetaxadviser.com/issues/2025/dec/prop-regs-would-make-permanent-safe-harbor.
7. Form 8308 (Rev. October 2024), Department of the Treasury, Internal Revenue Service. Form 8308 is a work of the U.S. federal government and is in the public domain (17 U.S.C. § 105). The reproduction in the exhibit is simplified for illustration; see the official form for complete fields and instructions.